Economy

The AI craze could further lift stock prices, boost capex, and delay the onset of the next recession. Looking further out, reaping the profit windfall from AI may take longer than many investors expect.

Symptoms of a liquidity trap for Chinese households are appearing. Our proprietary indicators for the marginal propensity to spend among households and enterprises continue falling. There has been a paradigm shift in Beijing’s approach to policy stimulus. Authorities will be slow to introduce large stimulus. Hence, China-related financial markets are set to fall further.

Risk assets would perform well over 12 months only if inflation falls to 2% without triggering a recession. That would be unprecedented. We recommend investors stay defensive.

The CCP is poised to roll out a re-boot of China’s economy that will focus on its comparative advantage in the processing of base metals – particularly copper – and the export of metals-intensive products like EVs. The re-boot will emphasize deeper policy coordination to revive construction, manufacturing, exports and renewed efforts to attract and retain FDI. This will be bullish for commodities – particularly conventional energy and metals – as funding flows to SOEs.